Metro Bank launched into mainstream UK retail banking in July 2010 and has been growing rapidly. As the first new retail bank for over a century, how is it fairing? In the second of The Finanser Interviews we talk to Craig Donaldson, CEO of Metro Bank, to find out.
You’ve been on this roller coast ride with Metro Bank since the start. Perhaps you could give us a perspective of where the origins of the bank came from and how you got to where you are today?
The origins of the bank are based on convenience. Banks have forgotten how to deliver service to customers in the right way, and in the way they want them. So our founders, Vernon Hill, and Anthony Thompson discussed the situation of banking in Britain and Anthony convinced Vernon to come to the UK. Vernon’s model is all about building for convenience and providing superior service across every channel. Our customers are empowered to bank with us however, wherever and whenever they want to. Yes, we have stores, and we are rapidly growing our footprint, which will continue as with our development of all our channels.
The stores are open seven days a week, 362 days a year, from 8am-8pm and we have great internet banking services and telephony. Our local contact centre is open 24*7, with two lines: one if you want to talk to a person, and one if you want to talk to a computer. It is all about service and convenience and giving the customer a choice. Our job is to allow the customers to be in control. That’s why our stores are tangible or they can use our digital services if they prefer.
We were the first bank able to produce contactless Chip and PIN cards within minutes in store for new and existing accounts, which meant we were able to give customers a different experience. If you think about our personal mobile app, we give customers the opportunity to temporarily block and unblock their cards – something no other bank lets you do. For customers, that’s been a fantastic delivery service, as often they’ve purely just mislaid their card. To me, technology is not about digital channels. It is about how you interact with customers through every channel.
Our service convenience comes from a proven model built in America through Vernon’s previous bank, Commerce Bank. We now leverage that model through every channel in the UK. This is how we interact and are able to deliver unparalleled levels of service to our customers.
When Metro Bank opened with a store based model, it had some unusual features about welcoming dogs, and having coin convertors in the foyers. A lot of other people might think that’s just gimmicks. Does it have any substance?
Absolutely. For example, take the idea that we give out lollipops to children or water bowls and treats for dogs. This is because we want to be there for our customers. We want you to bring your children into the store, and make it easy for you to do so as we know parents have very busy lives and for them to be able to bank whenever they want, makes life that little bit easier. We want you to bring your dog into the store, and make it easy for you to do so. It is why, for the last three years, we are the only bank to have won a gold award from Mumsnet for being family friendly, and that is for both our customers and our colleagues. So is it a gimmick to have lollipops and toilets in all of our stores? Is it a gimmick to have baby changing facilities? Well again, Mumsnet have given us their award for innovation for those things. So to me, that’s not a gimmick. We’ve also won the Kennel Club, Open For Business With Dogs Award for the last three years in a row, as they recognise who we are and what we do for all of our customers. We keep winning these well publicised awards and, as a result, we win a lot of business and customers through those little things that matter. So no we don’t think these are gimmicks – we are telling customers we are open for business and want to serve them and it works.
I know you have been growing aggressively. Last time we spoke, I think you were around just over 20 stores and opening around 14,000 accounts a month. What are those numbers today?
We are now at 32 stores and will be at 41 by the end of this year. Our aim is to open almost one a month as we go through 2015. We are opening around 18,000 accounts per month now, as we open more stores. Such growth allows us to build proper relationships with our customers and businesses. We deliver service and convenience, and as a result, our customers tend to stay with us. I would rather win a customer because of what we offer through service in stores, than because we have an offer that gives £100 for an account opening and then they leave as someone else offers £150. Our contract with our customers is really clear and I think that’s a better model for the long term.
Before you existed, First Direct topped the awards for customer service and satisfaction. Is that your benchmark? Is that who you mark yourself against?
No. Our benchmark is John Lewis. To me, John Lewis are streets ahead when you look at all their services. We did a piece of work where we benchmarked ourselves against Apple, John Lewis, Disney, Richer Sounds, Pret, and Lush. We do our own benchmarking against those that offer the best service and convenience through all channels – not other banks.
In that context, if I look at the new challenger banks, they tend to just talk digital only. How integral is the store in this offering?
Being part of the community is where we want to be – we know that customers want to be able to go into store if they need to. However we also want to offer the best in digital, mobile and internet banking, but having the high street presence to connect locally with the community is very important to us. To me, I want to be offering the very best in every channel not just a select few because it is cheaper for me as a bank. Service & convenience for me is all about giving customers choice, and what customers want is the ability to choose what channels they want to interact with their bank and not the other way round.
If you look at John Lewis, they have click and collect services. I can buy goods from them on my iPad for delivery; or I can buy it in one of their stores; or I could collect it at 2pm the next day in store or even my local Waitrose when I am doing my shopping; or I could take it there and then. That’s brilliant service as it provides options and banking needs to provide that style of service – when, where and how is what we need to remember.
I don’t think you need 2,000 stores to be able to provide a successful service, but I don’t understand why customers would compromise when banks could deliver the same great digital offering with a store option in their community as well.
On a storefront, people such as Brett King are saying that the cost overhead of stores is too high and adds unnecessary cost to the customer. Equally customers don’t want stores, especially millennial customers who don’t feel they need to see any one face to face and get advice. I guess you would disagree?
I think it is important that the customer is given the choice as to how they wish to interact with the bank, they are the customer! But there are times when people really do want face to face service no matter what. Have you ever lost a card? Do you want to wait until it’s posted out to you in seven days’ time or do you want to pop in and wait three minutes whilst it is being printed for you in store? I think people would come into a store for that. Do you want to count your coins at home, or do you want to go to Sainsbury’s and Tesco’s and pay an 8% fee for that? Or do you want to use our coin counters for free?
If you look at our account openings, 77% of our customers had their accounts opened in fifteen minutes, from first key stroke to last key stroke, in the first half of last year. That is a full account opening with Know Your Customer and delivery of a personalised card and cheque book. That is fifteen minutes from the first keystroke to the last keystroke. No other bank can do that.
I don’t know where you keep your valuables but for a lot of small businesses for example, they want to keep it locked away in a big safe. We offer safety deposit boxes in our in-store vaults. It is a tangible offering which most high street banks no longer offer their customers unless they are private banking customers
We work with our communities to build relationships not only with personal banking customers but with local businesses too. We had over 11,000 school children come into our stores as part of the national curriculum, so they could be educated on personal finance through our Metro Money Zone programme. We have worked at over 2,000 community events close to our stores to help local communities. To me, being part of the communities is massively important and we can only truly do that with our stores.
If stores are the focus, what is role of digital capabilities? I remember you mentioned to me using twitter, for example. What does that mean?
We don’t market through twitter, but we can answer customer as well as potential customer queries through twitter. Our social media team is bigger than our marketing team because we want to be able to work with customers at a time that works for them. My view is that the banks aren’t trusted generally in the UK, so what’s the point in banks spending millions of pounds on advertising, so they can tell people what they don’t believe? It’s an old fashioned way of thinking. My view is that customers want answers when they want them and, for many, social media is where they expect to get answers these days so you’ve got to be there. Then it is choice so that, if they want to be able to get a new card instantly, they can walk into a store and get it. Some may want to be able to check something out on their phone and use the app, others want to make a call.
If you’re only a digital bank you can only offer digital services. By offering a multi-channel service the customers can be in control across all of their needs, and my job is to support them in doing that. I think the stores are a massive part of that. 2,000 stores are too many but 250 to 300 stores are the perfect number, if you truly are going to part of a community. I don’t know how you do that if you are just digital.
Looking at the digital side of things, I am a big exponent of reinventing core systems. Your core system is only five years old but I get the sense that you’re slightly different.
We are very much where banks want to be, and probably trail blazed as a bank by building Software-as-a-Service (SaaS) in banking. We use Temenos core banking software on what we call ‘pay as you grow’, and therefore you keep your cost base appropriate to the size of your organisation. That was massively important to us.
The thing that is often missed is that so much of what we do is a straight through process - we fulfill all things at the point of sale in-store.
When you walk into the stores we can open your account end-to-end in fifteen to thirty minutes. That’s print your card; give you a cheque book; set up your internet banking; and download the mobile app. We can do it all end-to-end in minutes through straight through processing.
If you are at another bank, they need to send you multiple pieces of paper in the post. They send it to you and take days or weeks to process. We do it all straight through process at the point of sale. So our cost base is where the customer is and not in huge back offices.
Equally one of the big challenges for Digital bank is KYC.
Absolutely. 80% of our customer account openings are straight through process. We are really very, very good at how we open accounts. This means customers who try to be naughty can be caught at point of sale. Our machine checks every passport and document at the point of sale. We can stop third party frauds straight away.
Also, the way we have built our systems, they are much simpler to use. We can really hire for attitude and train for skill. Our biggest advocates are our colleagues who sell our brand to their families, friends and their businesses because they believe in what we are doing.
That is not forgetting we are also a SME bank. We do retail and business banking for small and medium sized businesses, and I have many small businesses that use our coin counting services, for example. We have a dry cleaner who needs cash management services, and who wants to be able to get coins and notes out. There are a lot of the SME’s out there that have cash needs and, to fulfill those cash needs, you need a store environment. I think the SME market is the most underserved.
I want to move a view to the future. Vernon’s ambition was to have 200 branches by 2020 and to get to an IPO within a decade. How on track is this?
In January last year we went out and raised a further £370 million of equity to fund our growth, so we do not need to raise any more money at the moment. We have now had six quarters of reducing losses and that will continue every quarter as we grow into profitability. As for an IPO, we are definitely considering it in 2016 but that is a decision for later this year, early next year. As for being on track, we are probably 18months ahead of where we hoped to be.
As for additional stores, my view is that by 2020 we will have around 130 to 150 stores, as we have and are investing a lot more into the digital channels. As we grow, we can make a decision on where we grow, rather than carrying all the legacies, and so we can grow appropriately with technology.
In terms of the landscape five years from now, these new startups and challengers will be still on your radar or will your radar still be in tune on the incumbent banks?
I genuinely hope there are new challengers. The more diversity we have in the banking ecosystem, the better the UK will be. One of my concerns is what we don’t need more of is the same monoline offerings coming out, like savings with mortgages. We need people coming to market offering different things to attract different people. By 2020 I would like to see well performing challenger banks bringing differential offerings to the market, not just a bunch of imitations.
About Craig Donaldson
As CEO of Metro Bank, Craig Donaldson is responsible for providing executive leadership to the bank’s rapidly expanding team. He is chartered with guiding the bank’s evolution from fresh, new entrant in retail banking to trusted financial services partner to millions of UK customers. From helping define Metro Bank’s brand values, to hiring its inaugural employees and ensuring that the bank’s staff deliver daily customer delight; Craig has been instrumental to Metro Bank from day one. Craig has more experience in the banking industry than he can remember. His prior roles included Managing Director of retail products at RBS, as well as senior roles with Barclays and HBOS. He has a degree in management and technology from the University of Bradford. Craig is a keen supporter of Sunderland AFC and is lucky enough to have a young family to enjoy.
Craig Donaldson will present the Metro Bank story live and in person at the Financial Services Club Quarterly Dinner on 10th March (register if you want to attend). Next week's interview is with Anne Boden, CEO of Starling Bank, a new digital bank being launched in the UK later this year. Meanwhile, you can find more interviews and case studies like this one over here.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...